Orange County prosecutors are investigating a bankrupt drug-rehab nonprofit after an audit found $354,000 in public payments to the organization could not be accounted for or were spent erringly, including a large sum that improperly went to a retirement account benefitting only the organization’s CEO, according to county records.

“It is suspected that the (nonprofit’s) accounts may have been used to participate in criminal activity,” Orange County District Attorney investigator David Melnyk wrote in a March 8 internal county memo recently obtained by the Southern California News Group. A spokeswoman for the DA did not answer questions about the nature of the probe or what crimes are suspected other than saying the matter is “under review” by the office’s Special Prosecutions Unit.

The DA’s office launched its investigation into the Sacramento-based nonprofit California Hispanic Commission on Alcohol and Drug Abuse (CHCADA) and its parent company, Genesis Title Holding Corporation, following an October audit conducted by Auditor-Controller Eric Woolery’s office, which discovered the discrepancies.

Prior to the audit, the nonprofit had provided residential detox and drug-rehab treatment to the county for at least 25 years. But since the findings, the county has ended CHCADA’s contracts, worth a combined $15.2 million, some of which helped recently released inmates. The county transferred those clients to other treatment centers. The nonprofit declared Chapter 11 bankruptcy in Feb. 2016, spurring the county’s audit.

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Among other problems, the investigation found CHCADA failed to pay $167,000 in rent to a local landlord despite invoicing and receiving county payments specifically for that purpose. The audit also revealed that the nonprofit had artificially inflated its rent through its parent company, billing the county between 3 percent and 10 percent more than the landlord charged and keeping the difference. One such markup occurred at a property owned by CHCADA Chief Executive Officer Jim Hernandez.

The DA investigator also wrote that upward of $66,000 in public payments went into a retirement account “that only benefited the CEO,” despite the fact the nonprofit’s invoices “represented these costs as though they benefited employees that directly supported the county contract.”

Representatives for CHCADA did not return several calls for comment, but the nonprofit’s responses written in the audit deny any intentional wrongdoing and sometimes shift the blame to others.

In the audit, CHCADA did not explain why it failed to pay some of its rent, but it accused its landlord of trying to double or triple lease payments in an effort to defraud the county. The auditor determined the landlord’s price was reasonable and not fraudulent.

The nonprofit stated that it inflated its rent through its parent company in part to cover facility maintenance and administrative costs of monitoring contract compliance. But the auditor reported that photos of the building showed it was not properly maintained.

The nonprofit also stated that it inflated rents by 10 percent at one property because it has numerous lease complaints that required “an extraordinary amount of time by the contract compliance officer,” according to the audit. In response, the auditor pointed out that the facility in question was owned by the nonprofit’s CEO and questioned why CHCADA would rent a space that “has significant complaints … and would cause the CEO’s organization to lose money.”

The California Hispanic Commission on Alcohol and Drug Abuse was founded in 1976 to help provide treatment to “Latinos and other marginalized populations in California,’ according to its website. But the nonprofit struggled financially more recently, losing $1.2 million in its 2014-15 fiscal year, the last for which tax documents were publicly available.

Bankruptcy records show CHCADA claims it owes the county nearly $28,000. But Woolery, the county’s auditor-controller, said the county is seeking between $300,000 and $400,000 from the nonprofit.

“Because one of the things you can’t discharge in bankruptcy is fraud, so we feel like this money was taken from us frequently and shouldn’t be discharged,” Woolery said.

The nonprofit also owed its CEO $31,000 in bankruptcy.

Los Angeles County also has four contracts with CHCADA worth $6 million. The county did not respond to questions about whether it was investigating the nonprofit.

Jordan Graham covers congressional politics and county government for the Orange County Register. He began his career reporting freelance civic and watchdog journalism in his hometown of Chicago before moving westward in 2013. He has previously covered Irvine, the San Fernando Valley and Costa Mesa for the Register. He is a graduate of University of Illinois and Northwestern University. Please email or call him with news tips.